Energy crisis provokes Argentine YPF expropriation

A worker gestures beside an YPF oil company truck near a plant in La Plata, Argentina, Thursday April 19, 2012. Argentine President Cristina Fernandez has defended the move to re-nationalization of YPF as part of a drive to restore her country's sovereignty, increase oil production and rely less on hydrocarbon imports.(AP Photo/Natacha Pisarenko)
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A worker gestures beside an YPF oil company truck near a plant in La Plata, Argentina, Thursday April 19, 2012. Argentine President Cristina Fernandez has defended the move to re-nationalization of YPF as part of a drive to restore her country's sovereignty, increase oil production and rely less on hydrocarbon imports.(AP Photo/Natacha Pisarenko)
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A man walks past a Repsol gas station in Madrid, Wednesday April 18, 2012. Argentina's takeover of its top energy company from Spain's Repsol might solve the country's short-term energy needs, and it thrills Argentines who blame privatizations for their economy's collapse a decade ago. But analysts say it sends a terrible signal to anyone wanting to invest in Argentina. President Cristina Fernandez made Spain furious by decreeing that her government will recover YPF by expropriating Repsol's majority stake in the company. (AP Photo/Paul White)— AP

A man walks past a Repsol gas station in Madrid, Wednesday April 18, 2012. Argentina's takeover of its top energy company from Spain's Repsol might solve the country's short-term energy needs, and it thrills Argentines who blame privatizations for their economy's collapse a decade ago. But analysts say it sends a terrible signal to anyone wanting to invest in Argentina. President Cristina Fernandez made Spain furious by decreeing that her government will recover YPF by expropriating Repsol's majority stake in the company. (AP Photo/Paul White)
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Argentina's Planning Minister Julio De Vido, left, and Vice Economy Minister Axel Kicillof, who were appointed by President Cristina Fernandez to handle the expropriation of the YPF oil company, arrive to Congress which is discussing a bill proposed by Fernandez to gain control of Argentina's energy reserves in Buenos Aires, Argentina, Tuesday April 17, 2012. Fernandez pushed forward a bill to renationalize the country's largest oil company on Monday despite fierce criticism from abroad and the risk of a major rift with Spain. Fernandez said the legislation put to congress would give Argentina a majority stake in oil and gas company YPF by taking control of 51 percent of its shares currently held by Spain's Repsol. (AP Photo/Natacha Pisarenko)— AP

Argentina's Planning Minister Julio De Vido, left, and Vice Economy Minister Axel Kicillof, who were appointed by President Cristina Fernandez to handle the expropriation of the YPF oil company, arrive to Congress which is discussing a bill proposed by Fernandez to gain control of Argentina's energy reserves in Buenos Aires, Argentina, Tuesday April 17, 2012. Fernandez pushed forward a bill to renationalize the country's largest oil company on Monday despite fierce criticism from abroad and the risk of a major rift with Spain. Fernandez said the legislation put to congress would give Argentina a majority stake in oil and gas company YPF by taking control of 51 percent of its shares currently held by Spain's Repsol. (AP Photo/Natacha Pisarenko)
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In this picture released by Argentina's Press Office, President Cristina Fernandez, left, greets supporters during the inauguration of an energy plant in San Juan Argentina, Thursday April 19, 2012. Argentina's government showed no signs of backing down Thursday from expropriating a Spanish company's controlling stake in YPF, Argentina's formerly state-owned energy company, shrugging off international condemnation while finding overwhelming support for the plan in congress. (AP Photo/Argentina's Press Office)— AP

In this picture released by Argentina's Press Office, President Cristina Fernandez, left, greets supporters during the inauguration of an energy plant in San Juan Argentina, Thursday April 19, 2012. Argentina's government showed no signs of backing down Thursday from expropriating a Spanish company's controlling stake in YPF, Argentina's formerly state-owned energy company, shrugging off international condemnation while finding overwhelming support for the plan in congress. (AP Photo/Argentina's Press Office)
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People walk past signs reading in Spanish "YPF, 100 percent public" in Buenos Aires, Argentina, Thursday April 19, 2012. Argentina's government showed no signs of backing down Thursday from expropriating a Spanish company's controlling stake in YPF, Argentina's formerly state-owned energy company, shrugging off international condemnation while finding overwhelming support for the plan in congress. (AP Photo/Natacha Pisarenko)— AP

People walk past signs reading in Spanish "YPF, 100 percent public" in Buenos Aires, Argentina, Thursday April 19, 2012. Argentina's government showed no signs of backing down Thursday from expropriating a Spanish company's controlling stake in YPF, Argentina's formerly state-owned energy company, shrugging off international condemnation while finding overwhelming support for the plan in congress. (AP Photo/Natacha Pisarenko)
/ AP

BUENOS AIRES, Argentina 
Less than a decade ago, Argentina was an exporter of oil and natural gas. Now the government has to spend billions of dollars to import fuel.

This dramatic reversal of fortune is why Argentina, already a global financial rogue after its historic debt default, is willing to risk becoming even more of a pariah by seizing control of its leading oil company from Spanish hands, analysts say.

Only two months earlier, Repsol YPF had upped its estimate for the shale oil and gas it found in Argentina to nearly 23 billion barrels, enough to double the country's output in a decade. But the Spanish company said it would cost $25 billion a year to develop, and warned that Argentina would need to overhaul its energy policy to attract the necessary investment.

Instead, Fernandez simply seized the company, giving her government access to billions of dollars' worth of cash, enough energy to answer domestic demand in the short term, and potentially even solving Argentina's chronic money woes in the future.

She accused Repsol of draining YPF since gaining control in the 1990s, underinvesting in its oil and gas fields and failing to keep pace with the needs of Argentina's growing economy even as it paid huge dividends to shareholders.

Repsol blames Argentina's ever-changing mix of subsidies, price caps and export taxes for depressing production as the country's demand for energy soared since 2003, when her husband, President Nestor Kirchner, came to power.

Both are partly right, says Eduardo Fernandez, an independent consultant and former fuels director in Argentina's energy ministry.

The problem was a government approved practice of allowing Repsol to use profits to pay shareholder dividends rather than invest that money in the company's future. "That led to a lack of reinvestment in utilities, little exploration and dwindling reserves, as oil fields dried up and productivity fell," Fernandez said.

Argentine oil production plunged 22 percent from 2000 to 2010, even as demand surged more than 40 percent, according to data from the Argentine Oil and Gas Institute and the Energy Ministry compiled by a former energy secretary, Emilio Apud.

Argentina's production has fallen so low that the government now spends billions of dollars a year on expensive imported fuels that it provides at a loss to companies and consumers.

Cheap energy helped Argentines rebuild after a world-record debt default and devaluation in 2002 left the economy in ruins. It makes less sense now, after nearly a decade of growth, but letting consumer energy prices rise too quickly could cause already high inflation to spiral, and provoke popular discontent in a country where pot-banging street protests have driven other presidents from office.

The energy subsidies spiked by 63 percent in 2010 to $5.6 billion, according to a former energy secretary, Alieto Guadagni. At the time, oil traded at about $80 a barrel internationally. With oil now going for more than $100 a barrel, this year's bill could be nearly $10 billion, even as the economy cools with less demand from China and Brazil.